The car leasing rentals are assumed to rise by 25%-30% due to the tax incidence by GST. Cab companies such as Ola and Uber who have leased more than 30,000 cars face this threat.
Lease companies such as LeasePlan, Orix, Clix, TranzLease, Ola Fleet Technologies, Uber, Arval, ALD, Tata Capital and Tractor Manufacturers Association have put a petition to the government for the exemption from central goods and services tax on existing leases to prevent double taxation, because the central excise duty has already been paid on these vehicles. A senior government official has said, “We are looking at the issue and will take it to the GST Council”.
This situation escalated as lease will be treated as goods and not as services and is accordingly being levied with new proposed GST rates. When these cars were purchased, the central excise tax has already been paid. The GST includes central excise and many state taxes, the raise will include double taxation as excise has already been paid.
We have simplified this situation with an example:
According to the current conditions, a monthly lease on a car is Rs 25,000, it will be facing 12.5% VAT which comes to about a grand total of Rs 28,125. When GST will be imposed, the total amount will come to Rs 35,750 because of 28% GST and 15% Cess.
Ola Fleet Technologies has said that its driver-partners are currently paying 14.5% VAT and when GST will be applied, these driver partners will have to bear the rates of 29% to 43% on the cars which have already been leased. This will impose double taxation on existing leases, which will indirectly affect the livelihood of their driver-partners and will eventually not be able to sustain in the current business. Not only cars but tractors also will be affected because of the incremental tax burden.
According to the decision made by the government, the cab companies will decide if they will bear the burden or will transfer it to the drivers.